The prospect of instability in the eurozone's third biggest economy saw the currency drop about 1% against the dollar to around $1.05 in Asia trading. It trimmed those losses later in the day.

Read More

The decisive outcome, with a 70% turnout, is considered a notable victory for eurosceptic populist and nationalist parties, which campaigned heavily against Renzi and his promise to stimulate Italy's sluggish economy.

"When you lose you cannot pretend that nothing has happened and go to bed and sleep. My government ends here today," Renzi said Sunday.

Next steps

Italy's path will become clearer as the week progresses. According to Italy's ANSA news agency, the budget law could be approved by Friday.

But Renzi's decision to resign brings with it yet more uncertainty. There is the possibility, for example, that a caretaker administration could be appointed to keep the country running until the 2018 elections.

Renzi, left, met with President Sergio Mattarella Monday.

That could see the likes of finance minister Pier Carlo Padoan or even Pietro Grasso, the Senate leader, take over as prime minister.

And while unlikely, there is also a scenario in which the Italian Parliament is dissolved and a snap election is called.

Europe reacts

As Europe awoke to the result, leading figures began to react to the latest installment of political change.

In Brussels, European Commissioner for economic and financial affairs Pierre Moscovici said he remained convinced the Italian authorities would deal with the situation.

"Italy is a strong country, a reliable country," he said, adding that he did not expect an economic crisis.

He also insisted the result was not an anti-Europe or an anti-EU vote.

German Finance Minister Wolfgang Schäuble added that he expected Italy to "make the best of it," while president of the Eurogroup, Jeroen Dijsselbloem, rejected accusations that the result would radically affect the economic situation within the country.

What was it all about?

At its core, this vote was a referendum on whether or not Italy should amend its 1948 constitution.

Renzi wanted to reduce the power of the Senato, the upper chamber of the Italian Parliament, by slashing its numbers from 315 to 100 -- making it more of a consultative assembly.

Proponents of the referendum said that the goal was to make the job of governing Italy less complicated and that the reforms would help revive the nation's lethargic economy.

However, critics claimed the reforms would impact the constitution's checks and balances and give the prime minister too much power.

Elly Schlein, an Italian member of the European Parliament, said the proposed reforms would have transferred too much power into the hands of the ruling party.

"It was shifting power from the regions to the center in a really unbalanced way," she said. "It was a dangerous reform for the roots of our democratic system."

This, according to Schlein, was Renzi's "completely unnecessary" mistake. She said that personalizing and dramatizing the vote meant that many of the people who voted "No" -- particularly the younger voters -- did so for political reasons beyond the context of the reform and its consequences.

"The vote was transformed into a vote on himself and his government," she said.

'A lost opportunity'

In Rome, emotions ranged from elation to extreme disappointment.

"I believe this was a lost opportunity for our country," Lino Settola, director of a private company, told CNN.

"What interested me was speeding up the process of passing laws and not continuing the ping pong between the House of Representatives and Senate, waiting years before things happen.